Recent Slump Might be the Ticket for Big Gains in Gold (GLD) (IAU) (GG) (ABX)
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The SPDR Gold Shares (NYSE: GLD) is ticking higher following a bullish report in Barron's issued over the weekend.
Following a record $134 in gold futures last Monday -- the largest seen in some 30 years -- stocks in the sector are starting to look enticing. Multiples are at or near all-time lows for names like Barrick (NYE: ABX), Kinross Gold (NYSE: KGC), Goldcorp (NYSE: GG), Newmont Mining (NYSE: NEM), and others following the recent price action.'
Barron's suggest that Goldcorp is probably the safest play in the sector given its low mining costs, solid balance sheet, impressive growth outlook, and robust market cap of $22 billion. The company plans to increase output about four million ounces per year through 2017, from 2.3 million in 2012.
The riskiest name is Barrick, said Barron's. The company's debt -- currently at $14 billion -- isn't generating any free cash flow after considering CapEx. Chile has also ordered Barrick to stop work on a remote mine located on the Chile-Argentina border. The delay in opening will add to costs that have doubled since the project was announced, at about $8 billion to $8.5 billion currently. The Dominican Republic is also pushing for better payments on a mine located in the region. Barrick has a 60 percent stake with Goldcorp owning the rest.
At five times earnings, Barrick appears cheap, but Barron's notes that profit estimates have also dropped on the recent gold slump. A rise in the price of the commodity could provide significant upside for those willing to place a bet.
One industry analyst for the Tocqueville Gold fund sees the baked-in price of gold at $1,350 per ounce, which includes all current and new mine work, meaning companies aren't creating much value right now. He thinks further management shakeup in the industry could happen and, along with cost cuts and reallocation of capital, would bolster any rebound in the segment.
Given that global governments are keeping low rates while printing money, gold might be a bright spot in investors' portfolio as macro pressure remains.
Plays on gold miners include:
Following a record $134 in gold futures last Monday -- the largest seen in some 30 years -- stocks in the sector are starting to look enticing. Multiples are at or near all-time lows for names like Barrick (NYE: ABX), Kinross Gold (NYSE: KGC), Goldcorp (NYSE: GG), Newmont Mining (NYSE: NEM), and others following the recent price action.'
Barron's suggest that Goldcorp is probably the safest play in the sector given its low mining costs, solid balance sheet, impressive growth outlook, and robust market cap of $22 billion. The company plans to increase output about four million ounces per year through 2017, from 2.3 million in 2012.
The riskiest name is Barrick, said Barron's. The company's debt -- currently at $14 billion -- isn't generating any free cash flow after considering CapEx. Chile has also ordered Barrick to stop work on a remote mine located on the Chile-Argentina border. The delay in opening will add to costs that have doubled since the project was announced, at about $8 billion to $8.5 billion currently. The Dominican Republic is also pushing for better payments on a mine located in the region. Barrick has a 60 percent stake with Goldcorp owning the rest.
At five times earnings, Barrick appears cheap, but Barron's notes that profit estimates have also dropped on the recent gold slump. A rise in the price of the commodity could provide significant upside for those willing to place a bet.
One industry analyst for the Tocqueville Gold fund sees the baked-in price of gold at $1,350 per ounce, which includes all current and new mine work, meaning companies aren't creating much value right now. He thinks further management shakeup in the industry could happen and, along with cost cuts and reallocation of capital, would bolster any rebound in the segment.
Given that global governments are keeping low rates while printing money, gold might be a bright spot in investors' portfolio as macro pressure remains.
Plays on gold miners include:
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